lbo 6863056 INVENTORY COSTING For supply item ABC, Andrews Company has been orde

Question

lbo 6863056 INVENTORY COSTING For supply item ABC, Andrews Company has been ordering 125 units based on the recommendation of the salesperson who calls on the company monthly. A new purchasing agent has been hired by the company who wants to start using the economic-order-quantity method and its supporting decision elements. She has gathered the following information: nnual demand in units number of u,der- annual demand ays used per year 250 EOO ead time, in days Ordering costs Annual unit carrying costs 10 $100 reorder po'nt% annual demand $20 x (e Required: Determine the (a) EOQ, (b) average inventory, (c) orders per year, (d) average daily demand, (e) reorder point, () annual ordering costs, and (g) annual carrying costs.

Explanation / Answer

Since, multiple questions have been posted, I have answered all the parts of Question 1 (inventory costing)

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Part a)

The value of EOQ is arrived as below:

EOQ = [(2*Annual Demand in Units*Ordering Cost)/(Annual Unit Carrying Costs)]^(1/2)

Using the values provided in the question in the above formula, we get,

EOQ = [(2*250*100)/(20)]^(1/2) = 50 units

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Part b)

The value of average inventory is determined as below:

Average Inventory = EOQ/2 = 50/2 = 25 units

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Part c)

The number of orders per year are calculated as below:

Number of Orders Per Year = Annual Demand/EOQ = 250/50 = 5

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Part d)

The value of average daily demand is calculated as below:

Average Daily Demand = Annual Demand/Days Used Per Year = 250/250 = 1 unit

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Part e)

The reorder point is calculated as below:

Reorder Point = Lead Time/Average Daily Demand = 10/1 = 10 units

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Part f)

The value of annual ordering costs is arrived as follows:

Annual Ordering Costs = Number of Orders Per Year*Ordering Costs = 5*100 = $500

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Part g)

The value of annual carrying costs is determined as below:

Annual Carrying Costs = Average Inventory*Annual Unit Carrying Costs = 25*20 = $500

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